BlackRock to Protect Money-Market Fund Value After ECB Cuts

BlackRock Inc., the world’s biggest money manager, told investors in its $1.4 billion-euro ($1.8 billion) ICS Europe Government Liquidity Fund that it will move to protect the fund’s net asset value after some interest rates in Europe turned negative.

BlackRock wrote to investors giving 14 days notice of its intention to switch on the Reverse Distribution Mechanism, the New York-based firm said in an e-mailed statement Friday. The decision doesn’t mean that the yield on the fund will turn negative, it said.

The European Central Bank cut the deposit rate to minus 0.20 percent this month, helping to drive yields on money market instruments lower and making trading conditions tougher for money managers. Record-low yields on government debt have already led some money-market funds to waive fees to keep returns positive.

BlackRock said increased geo-political risk and softer economic data in the euro area were also affecting the market.

“This is a situation that all euro money market fund providers face,” BlackRock said. “In the case of net negative portfolio yields, due to all securities that the fund can invest in trading negatively, maintaining a stable net asset value would be impossible without having appropriate mechanisms in place or undergoing structural changes.”

Money market funds will “continue to provide returns in line with short term euro yields and act as a valuable alternative to investors who already have limited places to hold their operating cash,” the firm said.